Refinancing After a Credit Score Hit – How to Recover & Get Approved

Refinancing After a Credit Score Hit – How to Recover & Get Approved

A missed repayment, a default, high credit card limits or a rough patch can drop your credit score quickly. Many homeowners think this means refinancing is impossible — but that’s rarely true. With the right approach, you can rebuild, reposition and still secure a better home loan.

This guide explains how lenders view bad credit, what you can fix quickly and how to get approved even with a recent credit score hit.

1️⃣ What Causes a Credit Score Drop?

Your score can fall for several reasons:

• Late or missed repayments.
• High credit card limits or usage.
• Too many loan applications in a short time.
• Defaults or payment arrangements.
• BNPL activity (Afterpay, Zip, Klarna).
• Overdraft usage or declined transactions.

Not all credit issues are deal breakers — many are fixable with a bit of planning.

2️⃣ Can You Refinance With Bad Credit?

Short answer: yes, often you can.
Your approval depends on:

• The severity of the credit issue.
• How recent it was.
• Your current repayment behaviour.
• Your equity position.
• Your income stability.

Some lenders specialise in “credit repair” refinances, while others accept applicants with minor blemishes.

3️⃣ How Lenders Assess Your Credit Situation

Lenders look beyond your score and into your actual behaviour:

• Are recent repayments clean?
• Was the issue temporary or ongoing?
• Have you recovered financially?
• Do you have buffers & savings?

A single late repayment is very different to a pattern of missed payments.

4️⃣ Quick Wins to Improve Your Borrowing Position

Some improvements can take effect within 30–90 days.
Focus on:

• Clearing small overdue amounts.
• Reducing credit card limits.
• Avoiding new loan applications.
• Keeping bank accounts in positive balance.
• Regular, on-time repayments for 3 months.

These changes can significantly boost your borrowing capacity.

5️⃣ When You Might Need a Specialist Lender

If you’ve had:

• Multiple missed repayments.
• Defaults (paid or unpaid).
• Part IX or hardship arrangements.
• A recently discharged bankruptcy.

You may need a lender who specialises in higher-risk scenarios.
Rates may be slightly higher, but they often serve as a stepping stone back to mainstream lenders.

6️⃣ Why Consolidating Debt Can Help

If your credit score dropped because your finances became unmanageable, consolidating debt can:

• Lower your monthly commitments.
• Improve cash flow.
• Help you stabilise your budget.
• Set the stage for a future refinance back to a sharper rate.

This approach can turn a short-term challenge into a long-term win.

7️⃣ What Documents Lenders Need for a Credit-Repair Refinance

Prepare:

• 3–6 months of bank statements.
• Recent payslips or income verification.
• Loan statements for all debts.
• Explainer letters for any credit events.

Clarity helps lenders understand your situation — and approve your refinance sooner.

8️⃣ Common Mistakes People Make After a Credit Hit

Avoid:

• Applying with multiple lenders at once.
• Keeping high card limits “just in case”.
• Ignoring small overdue amounts.
• Letting BNPL activity continue uncontrolled.
• Assuming you need a perfect score to refinance.

A clean 90-day run is often all you need to turn things around.

9️⃣ How Long Does It Take to Repair Your Score?

It depends on the issue:

• Late repayment: 1–3 months to recover.
• High utilisation: 1–2 statement cycles.
• Default: stays on file for 5 years (but still can refinance).
• Hardship flag: temporary, often manageable.

The goal isn’t perfection — it’s demonstrating stability and control.

🔟 The Smartest Way to Refinance After a Credit Score Drop

A broker can help you:

• Choose lenders who accept your current credit situation.
• Identify quick fixes to improve your score.
• Avoid unnecessary credit enquiries.
• Build a pathway back to sharper mainstream rates.